Income before tax for the year was $1,500,000 and the tax rate was 38%.
Depreciation was $120,000 and CCA was $67,000. Net book value at year-end was $840,000, while UCC was $893,000.
The warranty program generated an estimated cost (expense) on the statement of profit and loss of $257,000 but the cash paid out was $174,000. The $83,000 liability resulting from this was shown as a current liability. On the income tax return, the cash paid is the amount deductible.
Entertainment expenses of $55,000 were included in the statement of profit and loss but were not allowed to be deducted for tax purposes.
In the second year of its operations, Timmis Limited reported the following information:
Income before income tax for the year was $1,750,000 and the tax rate was 40%.
Depreciation was $120,000 and the CCA was $370,000. Net book value at year-end was $720,000, while UCC was $523,000.
The estimated costs of the warranty program were $287,000 and the cash paid out was $242,000. The liability had a balance of $128,000.
Prepare the journal entry to record income tax expense in the first and second year of operations. The second-year tax rate was not enacted until the second year.
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